This Week In Foodservice takes a quick look at how the economy performed in the first half of 2014, finds Sysco’s financials encouraging, reports on what’s going on at McDonald’s, finds a glimmer of hope in Knapp-Track info, looks at how important retirees are to restaurants, plus a whole lot more, including over a dozen new comparable store sales reports.
Most of the economic data for the first half of the year is now available allowing some generalizations. First, the job market has gotten better, particularly with more hiring in the manufacturing and construction fields and these tend to be good paying jobs. But troubles still remain, including the high number of long-term unemployed including many erstwhile workers over 50 who may not find full-time work again. The number of part-time workers who want to work full time is also troubling.
But the biggest problem is that wages have not progressed as the labor picture has improved. Stagnant wages slow economic growth and the median family income is 8 percent below 2007 levels.
Car and light truck sales have been remarkably good as consumers continue their love affair with pickups and SUVs which happen to be extremely profitable to the dealers and manufacturers. And, jobs in the automotive business tend to be well paid.
The housing market, while better than during the recession, remains weak. And while housing makes up only about 3 percent of the total economy it has a far greater impact than its overall size would indicate. Construction jobs pay well, mortgages are an important part of the credit market, and home buyers are big spenders on new appliances, furniture, and other household products.
Unfortunately, consumers seem to be more influenced by the negatives in the economy than the positives. The various consumer confidence polls bounce up and down from month to month but virtually none of them are near their historical highs and most are still below their pre-recession readings. The Wall Street Journal recently reported that one of their research studies found that 49 percent of those surveyed think the U.S. is still in a recession.
The foodservice industry deals not only with the overall economic situation but has specific problems its facing including the Affordable Care Act, the threat of unionization, and rising minimum wages. Prices of many food commodities remain above historical highs but many have moderated recently.
Overall, the first half of the year appears to continue what has been a weak recovery but the consensus of opinion is that the second half of 2014 should be better.
Economic News This Week
- Retail traffic has fallen as consumers change their buying habits. According to a recent Wall Street Journal article, shopper visits have fallen every month save one for the past year as people buy more selectively using mobile phones and computers to cherry pick items. Meanwhile, internet sales have increased 15 percent every quarter for the last 2 years and now account for 6 percent of total retail sales. Thus, as foodservice guru Malcolm Knapp has been saying since last year, people are cautious and very selective. This also shows why many foodservice chains are striving mightily to get their customers to order online.
- Initial jobless claims fell 14,000 for the week ending August 2 to 289,000. The less volatile 4-week moving average also declined, dropping 4,000 to 293,500. This is the lowest the 4-week average number of claims has been since February 2006.
- Gallup’s Job Creation Index, which has been inching up all year, is now at a 6-year high and hit 28 in July. The Index is calculated by taking the difference between those employees who report their employer is expanding their work force from those who report their employer is laying people off.
- U.S. workers’ productivity rose 2.5 percent in the Bureau of Labor Statistics’ preliminary estimate for the second quarter. Productivity fell 3.2 percent in the first quarter of this year. Rising productivity allows employers to raise wages without increasing their prices.
- The Institute For Supply Management’s Non-Manufacturing Index rose 2.7 percent in July. This is the highest this index has been since its inception in January 2008. Both the new orders index and the employment index rose last month. Approximately 80 percent of U.S. workers are employed in service industries.
- June construction spending fell by 1.8 percent over May according to the Bureau of the Census. Construction spending was up 5.5 percent over June 2013 but single-family home construction was down 1.4 percent vs. May.
- Consumer spending rose slightly in July based on Gallup’s self-reporting study that showed average daily spending of $94 a day. This was down from $98 a day in May but up from $89 reported in July 2013.
- Factory orders rose 1.1 percent in June to $503.2 billion. The Census Bureau says this is the highest level since the study was first started in 1992. Shipments increased 0.5 percent while unfilled orders increased 1.0 percent.
- The Gallup Economic Confidence Index fell 2 points in July to minus 17, the lowest since March. Overall, the Index remains remarkably consistent falling in a range of minus 14 to minus 17.
- Gallup reported that small business owners’ optimism continues to inch up, hitting +49 in July. This is well above the minus scores recorded during 2009-2010 but far below some of the +100 findings before the recession.
Foodservice News This Week
- Sysco reported a sales advance for the company’s quarter ending June 28. Dollar sales growth rose 5.9 percent to $12.3 billion. Sales from acquisitions increased sales by 0.6 percent while foreign exchange rates reduced sales by 0.7 percent. Sysco calculates food cost inflation was 4.1 percent. The giant distributor’s case sales rose 2.2 percent or 2.1 percent excluding acquisitions. Adjusted earnings per share were essentially flat compared to the quarter in the corresponding quarter of 2013. Given Sysco’s penetration of the foodservice industry, the distributor’s performance would indicate that there is some growth in overall foodservice sales volume.
- McDonald’s problems have multiplied. Comparable store sales for the world’s largest restaurant company were down 2.5 percent in July with U.S. store comps dropping a steep 3.2 percent. While McDonald’s had forecast a down month, last month’s results were even worse than anticipated. Asian sales were seriously impacted by “food quality and safety issues” due to a problem with a supplier. Further, McDonald’s 480 units in Russia may be vulnerable to restrictions from the Russian government in retaliation for trade sanctions from western countries as a result of the Ukrainian situation. In July McDonald’s announced an 18-month program to rebrand itself, though some of the steps involved have been previously announced, such as simplifying the menu and making kitchen’s more efficient. While McDonald’s has its problems, the company is far from being in a crash and burn mode. In the first 7 months of the year, the corporation’s sales were actually up 0.7 percent and when currency fluctuations are considered, sales so far this year are up 2.3 percent.
- Knapp-Track reported that July comparable store sales declined 1.1 percent for the 50-plus casual chains that participate in Mr. Knapp’s survey. Guest counts were down 3.2 percent, which implies check averages rose 2.1 percent. The first week in July was exceptionally poor. In fact, comparable store sales for the last 3 weeks of the month were up 0.1 percent. Knapp-Track data is provided courtesy of Bank of America Merrill Lynch.
- Retirees are a “bright spot” for restaurants according to The NPD Group. Retirees over age 65 ate 193 meals out last year, up from 171 meals in 2009. All adults over 18 ate 203 meals out last year but that’s down from 222 meals in 2009. NPD said the check average for all adults is $7.33 and average check is $8.05 for retirees.
- Middleby Corporation announced that the company’s commercial foodservice equipment group sales rose 18.3 percent in the last quarter. Without recent acquisition’s volume, the group’s sales were up 10.2 percent.
- Illinois Tool Works announced that the firm’s food equipment division’s sales increased 3 percent in the company’s fiscal quarter ending June 30.
- A C-store chain may be entering the Chicago Market with as many as 100 stores. A financial services firm that provides “shovel ready” retail sites confirms ongoing discussions with several major c-store chains not currently in the Chicago area.
- Friendly’s new ad campaign announcing redesigned restaurants and improved menu items may be working as sales rose 9 percent.
- Corporate Stirrings: Darden’s management has filed a “presentation” with the Securities Exchange Commission stating that Starboard Value L.P. has made inaccurate and misleading statements about the restaurant chain. Starboard Value is a private investment firm that has been highly critical of Darden’s policies and decisions including the sale of Red Lobster. Wendy’s will sell their 135 Canadian restaurants to franchisees. Morgan Stanley Investment Management, Inc. sold their entire holdings in Potbelly Corp., which is reported to have been 2.7 million shares, roughly 9.3 percent of the chain’s shares.
- Growth Chains: Marco’s Pizza plans on opening 400 stores in India in the next 10 years. Togo’s Eateries has signed several development agreements that will result in the opening of 5 new restaurants in California. Kona Grill will open restaurants this year in Florida, Georgia and Ohio. Cinnabon Bakery has opened their 100th bakery in a Pilot Flying J Travel Center and believes they will have 50 more by the end of 2015. CaliBurger has signed a franchise agreement for 10 restaurants in Maryland. FreshBerry Frozen Yogurt’s franchisee in the Middle East will open 15 stores in Qatar and Oman. Qdoba will open 60 restaurants in 2015 with a long-term goal of having 2,000 locations.
- Comparable Store Sales Reports: Arcos Dorados (up 7.8 percent), Bloomin’ Brands (Blended up 0.6 percent, Outback up 0.9 percent, Carrabba’s 1.2 percent, Bonefish Grill up 0.3 percent, and Flemmings up 3.6 percent), Brinker (Chili’s up 2.5 percent and Maggiano’s up 0.9 percent), Carrols Restaurant Group (down 2 percent), Chuy’s (up 2.4 percent), Famous Dave’s (company-owned down 5.2 percent and franchised down 2.8 percent), Fiesta Restaurant Group (Pollo Tropical up 6.7 percent and Taco Cabana up 2.8 percent), Ignite Restaurant Group (system down 3.1 percent, Joe’s Crab Shack down 4.7 percent, Macaroni Grill down 2.6 percent, and Brick House Tavern up 8.5 percent), Jack in the Box (up 2.4 percent), McDonald’s (down 3.2 percent), Papa John’s (North America up 6 percent, company-owned up 7.5 percent, and franchised up 5.4 percent), Qdoba (system up 7.5 percent, company-owned up 7.2 percent, and franchised up 7.7 percent), Wendy’s (company-owned up 3.9 percent and franchised up 3.1 percent), and Zoe’s Kitchen (up 7.3 percent).
For details and same-store sales of other chains, please click here for the Green Sheet.
Foodservice Industry Equipment Supplier Financial Data Reports this week includes the latest quarterly information for Ecolab, Illinois Tool Works, International Paper, Libbey, Middleby Corporation, Newell Rubermaid and Sysco. For the full report, please click here.